MARKET WATCH: Crude oil prices fall for third day

Sam Fletcher
OGJ Senior Writer

HOUSTON, Aug. 13 -- Energy prices fell again Aug. 12, with the front-month crude contract dropping a total 7% over three consecutive sessions on the New York market.

“Macroeconomic concerns based on a weak jobs report drove the broader markets downward for the third day in a row, and energy stocks were no different,” said analysts in the Houston office of Raymond James & Associates Inc. The crude price was still down in early trading Aug. 13 “despite reported German gross domestic product growth of 2.2%, the largest gain in 23 years,” they said.

Anuj Sharma, research analyst at Pritchard Capital Partners LLC in Houston, said, “Oil plunged 2.9% yesterday after taking a 2.8% dive the day before as the initial jobless claims climbed by 2,000 to 484,000 in the week ending Aug. 6, while economists were expecting that the claims would drop to 465,000. Although crude has made a quick retreat from the above $82 level it reached last week, we believe that it should find support around the mid-$70s considering the hurricane season is not yet over, US Gulf of Mexico supplies continue to be affected due to the slow permitting activity, and demand in the emerging markets continue to grow at a robust pace despite the slight slowdown.”

Natural gas was up slightly in early trading Aug. 13 after dipping 0.7% in the previous session “in the absence of a strong near-term driver and as the storage injection was in line with the market’s expectations,” Sharma said. The Energy Information Administration (EIA) reported the injection of 37 bcf of natural gas into US underground storage in the week ended Aug. 6, slightly above the Wall Street consensus for injection of 35 bcf. That brought working gas in storage to 2.985 tcf, down 158 bcf from a year ago but 219 bcf above the 5-year average (OGJ Online, Aug. 12, 2010).

“Although the moderating temperatures over the next few days will weigh on [gas] prices, we expect the fuel-switching demand to pick up some of that slack and provide support at these levels,” said Sharma.

In Zug, Switzerland, Olivier Jakob at Petromatrix reported, “West Texas Intermediate corrected down this week towards [its] implied value on the correlation to the Standard & Poor’s 500 index, the market volatility index, and the euro, but the continued sell-off brought WTI oversold to the correlation model by $1.30/bbl on the basis of yesterday’s close. The exogenous inputs have been supported overnight by a stronger than expected German GDP, but the real test on the global markets will be for later today when the University of Michigan Consumer Confidence Index is released, and before that we will also have to go through the US retail sales data and the US Consumer Price Index.”

Jakob noted his previous warning “about the downside risk on the heating oil crack, and heating oil spent the day leading the oil complex lower. If the gasoline crack had a small rebound, the losses on the heating oil crack prevented the 3-2-1 refinery margin [from] rebound.” He added, “Deliveries into the expiry of the August ICE gas oil contract were exactly at par to the levels seen in July. The Brent September contract will expire [Aug. 16], and the front contango both on Brent and WTI remains relatively shallow.”

In other news, Mexico’s state-owned Petroleos Mexicanos said its record budget request may get cut if oil prices maintain the current slide going into the Nov. 15 election. If so, “the market will lose confidence about the idea of the 21 jack up tender coming to fruition,” said Pritchard Capital Partners.

OPEC outlook
In its latest monthly report, the Organization of Petroleum Exporting Countries said its basket of 12 reference crudes ranged within $70-75/bbl to average $72.51/bbl for July, down 44¢ from the previous month. The modest price decline was mainly attributed to Middle Eastern crudes, which fell amid ample supply. The basket price surged at the end of July before drifting lower to $73.73/bbl on Aug. 12, down $1.57 for the day.

OPEC estimated global GDP growth in 2010 at 3.9%, only marginally above last month’s estimate. The 2011 forecast remains unchanged at 3.7%. “The world economy is facing increasing headwinds that will slow the growth momentum going forward. Challenges within the Organization for Economic Cooperation and Development include high unemployment, weak private demand, problems in the US housing sector, and in some countries, unsustainably high sovereign debt burdens. In China, government efforts to reign in excesses in property markets appear to be successful, and growth is moderating to more sustainable levels,” OPEC said.

OPEC estimated demand for its crude this year at 28.7 million b/d or 52,000 b/d higher than in its last report. This represents a decline of 200,000 b/d compared with a year ago. For 2011, cartel officials estimate demand for OPEC crude will average 28.9 million b/d, up 93,000 b/d from its previous assessment.

The International Energy Agency (IEA) in Paris earlier revised its global oil demand estimates higher, up 2.2% to 86.6 million b/d for 2010 and up 1.5% to 87.9 million b/d in 2011, based on stronger assumptions of gross domestic product and baseline adjustments. However, it said, “Weaker economic recovery, a third lower than the base case, would cut the 2010 and 2011 prognoses by 290,000 b/d and 1.2 million b/d, respectively.”

It said global oil supply rose 850,000 b/d to 87.2 million b/d in July, as Norwegian maintenance ended and OPEC. EIA hiked its non-OPEC supply estimate for 2010 to 52.6 million b/d, rising to 52.9 million b/d in 2011 (OGJ Online, Aug. 11, 2010).

OPEC reported its total crude production in July averaged 29.2 million b/d, a gain of 120,000 b/d over the previous month.

Energy prices
The September contract for benchmark US light, sweet crudes dropped $2.28 to $75.74/bbl Aug. 12 on the New York Mercantile Exchange. The October contract fell $2.34 to $76.15/bbl. In a rare move on the US spot market, WTI at Cushing, Okla., broke step with the front-month crude futures price and was down $2.23 to 78.02/bbl. Heating oil for September delivery lost 7.37¢ to $2/gal on NYMEX. Reformulated blend stock for oxygenate blending for the same month declined 4.28¢ to $1.95/gal.

The September contract for natural gas was down 3¢ to $4.30/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., increased 1¢ to $4.40/MMbtu.

In London, the September IPE contract for North Sea Brent dropped $2.12 to $75.52/bbl. Gas oil for August was unchanged at $652/tonne.

Contact Sam Fletcher at [email protected].